SPE Anyone Taking it?

[dfarms11]

Well, we have one last day to decide. Who's taking it and on what? It's kinda looking like any crop could work out if we get any normality in world production.

[HFL]

We are not. We feel like we are better off to price
some new crop production if we feel lower prices
are ahead. It will be interesting to see what others
have to say.

[jethro456]

Feel the same way as HFL. I can lock in new crop at
values well above the spe. The markets have to
move a long way to be profitable

[pgluca]

Almost anything can happen but with all the weather disruptions in the world at this moment I don't see a very high probability of benefiting from the "Spring price endorsement". Having said that if you can convince ME to insure your favorite crop it's price would probably go through the roof.

[jethro456]

Feel the same way as HFL. I can lock in new crop at
values well above the spe. The markets have to
move a long way to be profitable

[Ronski]

I took the SPE. I've sold more canola
for 8 than I have for 10 so its a good
worst case floor price. I presold some
of expected production but SPE sets a
floor price while leaving the upside
open.

[charliep]

My decision would be based on my marketing plan. Enough price risk ahead (with outcomes either good or bad) that I think farmers need to be doing something in terms of pricing new crop. Nothing wrong with forward pricing a portion of new crop. If you are not prepared to forward price (you can list the reasons as a manager), then SPE is one way of drawing a line in the sand in terms of establishing a minimum price. It is insurance with a premium with the obvious caveat that paying the premium/not collecting isn't a bad thing. Similar comment to buying insurance on your vehicles and not collecting - you didn't have an accident which is good thing.

I would also look at crops that don't have futures/options, active forward prices or don't want to lock yourself into a grain company. Again, insurance so simply a payout if prices decline by more than 10 % from current coverage levels.

Not encouraging or discouraging. Know your market strategy for this years (realising the first step is to get seeded and warm up your pencil/calculator to put financial cost/benefit to this decision.

[charliep]

Deadline is today. Will be interested in what participation levels will be this year.

[errolanderson]

Straight canola put options offer the
grower a higher floor price plus you
have control of the premium and there is
no deadline. And there is no margin
calls, no production or delivery
obligation.

Example: November canola $550 put
options may trade for $20/MT. This will
give you a $530/MT ($12.02/bu) assuming
a $0 basis.

[charliep]

Canola and wheat offer option/put alternatives. A bit of a stretch but CBT corn puts could be used for barley. Pulses and other crops have no market based way to establish a minimum price. SPE can do this. You also need to look at price. Barley is a crop that many are considering. Put into your own situation.

Again SPE is just one product. Use the one best for your business. Those that have the financial resources to handle lower prices can also choose to do nothing. Not my recommendation but the the alternative is there.

[charliep]

A final comment is to make sure you know the nuiances of the program including the fact SPE payment is triggered - i.e. if prices go below the 10 % trigger, you are compensated to the full coverage price set in the spring when you made your purchase decision. This would vary from an option strategy where you have a choices of different strike prices. On the other hand, you also have the alternative of collecting time value on an option during the year by selling versus SPE where the premium is an expense.

[vvalk]

That's right Charlie. You get paid back to $12.67
which is higher then today's price. Also there is a
Minus $20 basis already built into the price so it
would trigger at just over $519 a tonne not $500

[vvalk]

We are only $30 away from guaranteeing $12.67
a bus. For a cost of less then 1 bus per acre
doesn't seem too bad. It's definitely not. No
brainer which makes it really tough to decide

[vvalk]

Should say $519.50 averge futures is the trigger
for the month of October.

[errolanderson]

Charlie . . . we traded December Minneapolis spring wheat $7.50 puts today for 20 cents/bu today. This the first time we have traded Minneapolis which is an illiguid market. But for price protection these puts will work bigtime (if wheat prices continue to drop) or expire worthless if wheat rebounds through the summer/fall.

another alternative for wheat price protection.